Educational Articles

Coverage Initiation - FleetCor Technologies, Inc.

Andrew J. Cueter
| August 12, 2013

Value Line has initiated coverage of FleetCor Technologies, Inc. (FLT) in its flagship product, The Value Line Investment Survey. The company is a leading global provider of fuel cards and workforce payment products and services to businesses, commercial fleets, major oil companies, petroleum marketers, and government entities in countries throughout North America, Latin America, and Europe. FleetCor provides customers with various card products that typically function like a charge card to purchase fuel, lodging, and related products and services at participating locations. These payment programs enable its customers to better manage and control employee spending and provide card-accepting merchants with a high-volume customer base that can increase their sales and customer loyalty.

While the company traces its roots back to 1986, the current CEO took the helm in 2000 and changed the company name to its current moniker. Since 2000, FleetCor has grown significantly through a combination of organic initiatives, product and service innovation, and over 50 acquisitions. Consequently, revenues are diverse, with only fuel card products (13% of sales) accounting for more than 10% of the top line. Moreover, international sales made up about 43% of the top line last year. (Thus, operations are impacted by changes in foreign currency rates.) FleetCor is headquartered in Norcross, Georgia and employs 2,650 people, 700 of whom are in the United States. The company held its initial public offering on December 14, 2010 on the New York Stock Exchange.

FleetCor provides its payment products and services in a variety of combinations to create customized payment solutions for its customers and partners. These include its proprietary “closed-loop” and third-party networks. To support its payment products, FleetCor also provides a range of services, such as issuing and processing, as well as specialized information services that provide customers with value-added functionality and data. The company’s customers use these services to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration, and lower overall fleet operating costs. As a result of the company’s main line of business, it is subject to a substantial number of laws and regulations, both in the U.S. and internationally, related to its payment cards.

FleetCor markets its products directly to a broad range of businesses, commercial fleet customers, oil companies, petroleum marketers, and government entities, which provide cards and vouchers to their employees as benefits, as well as a tool to manage fuel expenses. Among these customers, the company provides its offerings to fleets of all sizes. Some of the company’s more well-known customers include BP plc (BP), Chevron (CVX - Free Chevron Stock Report), Shell, and Citgo. It especially believes small and medium commercial fleets represent an attractive segment, given their relatively high use of less efficient payment products. That said, FleetCor is subject to the credit risk of its customers, which is typically higher with smaller clients.

The most significant competitive factors the company faces are the breadth of product and service features, network acceptance size, customer service and account management, and price. While FleetCor generally performs well in respect to these categories, it may face disadvantages from time to time as potential customers may prioritize or value these competitive factors differently.

The company competes with independent fleet card providers, providers of card outsourcing services, and major financial services companies. It also competes with major oil companies and petroleum marketers that issue their own fleet cards, and financial institutions that issue corporate and consumer credit cards, or other forms of credit. FleetCor’s primary independent fleet card competitors are Wright Express Corporation, Comdata Corporation, U.S. Bank Voyager Fleet Systems Inc., Edenred, and Sodexo, Inc (SDXAY).

Because the company’s customers use its products and services primarily in connection with the purchase of fuel, its sales are affected by fuel prices. A change in retail fuel prices could cause a decrease or increase in revenue from several sources, including fees paid based on a percentage of each customer’s total purchase. Last year, about 21% of sales were directly influenced by the price of fuel. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts.

Moreover, a portion of the top line is derived from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant’s wholesale cost of fuel is dependent on several factors, such as the supply and demand for oil and gas, new oil production, and various others. The fuel price that FleetCor charges to its customer is dependent on several factors, including the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices, among others. The company experiences fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price it charges to customers, or the fuel price the company charges to its customers decreases at a faster rate than the merchant’s wholesale cost of fuel. About 18% of revenues are derived from transactions tied to fuel-price spreads.

Over the past three years, revenues have advanced 36%, 20%, and 23%, respectively, while share net has risen 43%, 31%, and 19%, respectively. Over this time frame, the company has been an active business acquirer both in North America and internationally, and it intends to continue to seek opportunities to increase the customer base and diversify its services through strategic acquisitions. Additionally, FleetCor will look to purchase commercial account portfolios, technologies, services, and products in the future.

Subscribers interested in FleetCor Technologies are advised to consult Value Line’s quarterly reports, as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.